Chapter 6 - Key financial issues facing insurance brokers (12 Qs) Flashcards

1
Q

What does the FCA set out in the Client Asset Sourcebook (CASS)?

A

Rules for brokers placing specific emphasis on the provision of adequate protection for client’s money (client assets). One way to ensure the protection of client assets is adopting client asset systems and controls. Can be premiums from client for the insurer or claim payouts.

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2
Q

What is the aim of the FCAs regulation of monies held by an insurance broker?

A

To minimise risk of financial loss from firms failing and exiting the market, and to mitigate the effect of this on consumers

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3
Q

Do brokers need to segregate their firm’s funds from the funds of clients’ and insurers’ money?

A

Yes - must be held in a separate bank account written under trust. Earned commission can be removed from the account every 25 business days or when the full premium has been paid and is cleared.

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4
Q

What is meant by a client asset?

A

Monies from an insurer which belongs to the client (following an MTA or Cancellation). Is held a in a separate broker account (if has DA for claims etc.) and if forwarded on = simply a holding account.

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5
Q

During an insurance transaction, when does the clients money become the insurers?

A

When the premium is paid, so as soon as broker is paid the money is then the insurers and cannot be refunded unless the insurer consents.

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6
Q

In what situation could different types of money be placed in the same bank account (broker, client, insurer) known as ‘co-mingling’

A

FCA makes clear can only occur if broker has the permission of the insurer to do so.

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7
Q

What is meant by granting ‘risk-transfer’ in a TOBA?

A

When the broker has authority to hold premium funds on behalf of insurer. Any money collected by the broker is deemed paid to the insurer, despite not being in the insurers bank account. Only happens with certain levels of trust.

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8
Q

What is the Insurance Distribution Directive (IDD)? - When did it come into force?
What is its purpose and what does it set out?

A

Came into force February 2016 and applied to firms since 1 October 2018, and despite leaving UK, IDD is still in force as part of UK law.
IDD sets out CONSUMER protection provisions and scope of reg includes all firms that sell, advise, conclude contracts and those who assist in administering and performing them as part of a selection process (aggregators) or introduce insurance.

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9
Q

What are the key provisions of the IDD?

A
  • Professionalism -> all firms engaged in the activities covered but have appropriate knowledge and ability to complete tasks and their duties adequately. Staff must complete 15 hours of CPD a year.
  • Commission disclosure -> Pre-contractual disclosure of the intermediary and the nature of the commission (not necessarily the amount)
  • New product governance requirements -> in line with the FCAs
  • Ancillary insurance intermediaries -> sell insurance but not their primary function
  • Insurance Product Information Documents (IPID) -> requirements for all firms in retail and small corporate sector to provide customers with the docs and is a short product/policy summary document. Purpose is to allow customers to customers to compare similar products (only for CONSUMER contracts)
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10
Q

Define the following words:
‘churn’
‘sticky’

A

Churn is the amount of clients which move their business between brokers
Sticky is classes of business where the clients remain with the same brokers

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11
Q

What do broking firms invest in to retain clients?

A

= Provide the best service so invest in:
- Quality staff
- Adequate training
- Good IT systems and communication

Also well motivated & contented workforce

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12
Q

What are broking firms focused on finding new clients and achieving success in new business likely to have?

A
  • Strong sales culture
  • Effective sales process
  • Good quality monitoring and management information
  • Right incentivisation of staff
  • The right staff
  • Senior management support - (marking promotion, incentivisation) also may have to cut fees to get NB on boardW
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13
Q

What is the name of the process where a broker will reduce commission and not take earnings on the business acquisition in the hope it will generate an income in the future?

A

Loss-leading

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14
Q

How do insurance brokers achieve growth?

A

New business through cross selling, up-selling or new clients

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